The Top Pros and Cons of Having a Business Debit Card
In addition, it can reduce the amount of cash you need to keep on hand. However, debit cards have their limitations, and you may find that a different solution better fits your needs.
If you’re deciding whether a debit card is the best option for your business, consider the pros and cons listed in this post.
What Are the Pros of a Business Debit Card?
1. It’s Convenient
Since most merchants accept debit cards, you typically don’t have to worry about having a backup payment method.
It’s very simple to use a business debit card; all you’ll need to do is swipe your physical card and enter your personal identification number (PIN). Then, the money is deducted from your checking or savings account balance. You also have the added convenience of getting cash back when you need it – either after completing a transaction with a merchant or by using your debit card at an ATM.
2. It Keeps You on a Budget
Unlike a credit card, which allows you to borrow and spend money you might not have, a debit card limits your spending to what’s in your checking or savings account. While you may be charged a fee if you overdraw your card account balance, you’ll avoid the high interest rates and late payment fees that credit card companies charge if you overspend and can’t make your payments.
3. It’s Easy to Qualify For
When you pursue a small business credit card, you may have to complete an extensive application process that includes a credit check and providing your earning history. On the other hand, most financial institutions or credit unions will offer you a debit card when you open a business checking account, even if you have questionable credit or no credit history at all.
What Are the Cons of a Business Debit Card?
1. It Won’t Boost Your Credit Score
When you borrow money, you build good credit by keeping your debt usage low and making all your payments on time. However, since a debit card only gives you access to money you already have, using it doesn’t impact your credit score. While this may not seem like a bad thing, you’ll need to find other ways to build your credit history to eventually qualify for a business credit card or loan.
2. There Are Spending Limits
If you need to make a large transaction and your business’s account balance is low, your debit card (or a business prepaid card) won’t be very helpful. Unlike credit cards or lines of credit that can give you access to financing when your cash flow dips, debit cards limit your business spending to your available cash balance. In other words, you may need an alternate source of funds.
3. It Offers Less Protection than a Credit Card
If your credit card is lost or stolen, you can simply dispute any unauthorized purchases and get a new card. However, because money is immediately deducted from your account when someone uses your debit card, unauthorized card transactions put your funds directly at risk.
According to FICO, the number of debit cards that were compromised at ATMs and merchant card readers rose by 70 percent between 2015 and 2016 – and that number rose another 39 percent through the first half of 2017. Due to this, if you have a debit card, you should always keep your card number and PIN safe.
Is a Debit Card Right for Your Small Business?
As a business owner, you have many options for how to manage your cash flow and spending, which includes debit cards, credit cards, prepaid cards, cash, and newer forms of electronic payments like mobile wallets.
While debit cards are convenient, easy to qualify for, and can help you avoid going into debt, they also offer fewer protections than credit cards and won’t help you build good credit. In addition, you should review the supplier’s terms and conditions, to make sure that you’re aware of any annual fees, restrictions, or other exclusions that apply.
Although you might have a personal debit card, you should apply for a separate business card to protect your finances. This might seem tedious, but it will benefit you when it comes time to file taxes or review past transactions.
Ultimately, it’s important to weigh all your financing options before deciding what’s best for your business. If your business uses a debit card to pay for necessary products or services, tell us about your experience in the comment section below!
Editor’s Note: This post was updated for accuracy and comprehensiveness in February 2022.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.